Tag: Congress

Auto Bailout is Pointless

On By Frank the TankIn Business, PoliticsLeave a comment

big-three-automakers-detroit

As the economy turns, Detroit auto executives are back on Capitol Hill arguing their case for a bailout of their companies.  While Congressional leaders have developed a nasty habit of putting on ridiculous publicized corporate CEO scalpings to feed to the rabid proletariat which really don’t address the actual economic issues at hand (such as the over-the-top uproar about the fact that the auto executives took private jets to Washington last month – I understand it wasn’t the greatest move from a PR standpoint, but the problems in Detroit have very little to do with the existence of corporate airplanes), it will hopefully result in absolutely no bailout for the automobile industry.

We can take up an entire business book aisle at Barnes & Noble about the reasons why a bailout would do nothing to change the fundamental business issues, but I’ll just address a handful of them.  At the top of the list, the auto industry’s issues were not caused by the current credit crunch – the problems with credit have only exacerbated items that the Big Three automakers have failed to change for nearly four decades.  Simply put, Congress propping up the American auto industry isn’t going to get people to want to buy American cars.  My wife and I own a Toyota and a Mercedes-Benz, and I have to say that the performance improvement of those cars over the GM and Chysler cars that we used to own have made the likelihood of us ever buying an American car again essentially zero.  I know plenty of people that would say the exact same thing (and these aren’t Lincoln Park chads and trixies or Naperville yuppies – I’m talking about blue collar people who would have always bought Chevys and Fords back in the day).  The combination of mileage, maintenance, and performance of the Japanese and German cars since the 1970s have vastly surpassed their American counterparts.  For far too long, the Big Three automakers have relied on guilting Americans into thinking that they have some type of patriotic duty to buy their cars (even though Toyota and Honda are actually the car companies that are expanding production in the United States as opposed to the Big Three) instead of improving their product.  While Detroit has attempted to catch up to the Japanese and German automakers in quality over the past few years, it’s a classic case of “too little, too late”.  The decades of neglect have made a close to irreversible dent in the perception of the Big Three where it is directly reflected in their resale values.  Outside of UAW enclaves in Michigan and Ohio, people are pretty rational consumers of cars overall, particularly when it comes to the second-most expensive household purchase after a house (or the most expensive purchase for those who rent).  If a Toyota sedan is about the same price as a Chevy sedan, but the Chevy depreciates in value 2-3 times faster than the Toyota, then more people are going to move toward the product that is going to keep its value longer (much less get a couple hundred thousand miles of low maintenance use out of that product).  The current poor economic conditions have heightened these problems but they aren’t the root cause of them, which is why government assistance would merely put off the inevitable for the auto industry.  If the Big Three couldn’t get their act together over the course of four decades, then I have absolutely no faith that they would be able to change a thing over the course of a three month bridge loan.

A common argument among supporters of the auto bailout is that Congress has already done the same for the financial industry.  This is certainly a fair argument as the government has now gone down the dangerous path of judging which companies are deemed “too big to fail”.  However, there are some key differences between the banks and the automakers.  The broad issue with the financial industry is that each major bank has literally millions of transactions with the other major banks such that the flow of money in both this country and around the world is closely intertwined (whether this is right or wrong is a discussion for another day).  Thus, the failure of a single major bank could endanger the liquidity of healthy (or at least stable) banks that are on the other ends of those transactions.  It then becomes a vicious circle, where each bank whose balance sheet is suddenly thrown up in the air then causes the balance sheets of many other banks to suffer, as well.  This leads to both consumers losing confidence in those banks by withdrawing their deposits and banks then stopping the flow of credit since they don’t have any liquidity.  As a result, entities ranging from individuals looking for credit cards and huge corporations searching for business loans can’t find any credit, causing overall spending and investment in the economy to grind to nearly a complete halt.  Indeed, if the federal government could change one thing over the past couple of months, it would not have allowed Lehman Brothers to fail since their filing for bankruptcy started this circular financial drain almost immediately.  At the end of the day, the American economy is driven by the flow of credit, so the financial industry was indeed “too big to fail” in this case since the repercussions went far beyond those wealthy Wall Street bankers and lawyers.  It has always driven me nuts when the media intimated that there was some type of line of demarcation between “Wall Street” and “Main Street” as if they had conflicting interests.  The fact of the matter is that Main Street can’t function from a financial perspective, whether it’s using your credit card to buy groceries, getting a student loan to go to school, or obtaining a mortgage to buy a house, without a healthy Wall Street.

As large as the auto industry might be in this country, it doesn’t have the same impact on every single person in the United States in the same manner as the financial industry.  This isn’t to ignore the impact of auto industry on millions of people that either work for the Big Three or are peripherally impacted as suppliers and providers of support services.  That being said, the UAW leaders need to understand that it’s no longer about what higher-than-market wages their locals are able to maintain – it’s now about whether their union members are going to have any jobs at all in the next few months.  Until both executive and union leaders come together to figure out how to trim costs, come up with better products, and have wage and production flexibility that is up to speed in the information age as opposed to the industrial age, any government assistance to the auto industry would simply be throwing money away.  Filing for bankruptcy is actually one of the best ways for force all of those stakeholders to come to the table (and it doesn’t mean that anyone will go out of business – United Airlines didn’t stop flying planes or layoff all of their employees just because it went into Chapter 11 a few years ago and the company is in better position today to survive a tougher economic climate as a result of its restructuring).  A government handout, however, would simply put off the tough changes necessary to make the Big Three to be viable again further into the future.

(Image from Tickerwatch)

The GOP’s Two Options: Build an Inclusive Majority or Become the Permanent Minority

On By Frank the TankIn Politics2 Comments

In the aftermath of the 2006 mid-term elections, I wrote this post lamenting about how the Republican Party’s losses that year were indicative of a widening gulf between the libertarian wing (which I consider myself to be a part of) and the social conservatives. This trend has sprung up more prominently as an issue in the blogosphere over the past couple of weeks as it has become almost assured that Americans will choose Barack Obama over John McCain for President on November 4th (unless you believe that every single reputable poll is incorrect). The internal struggle between the various factions of the GOP is characterized in a number of ways (i.e. elites vs. evangelicals or urban vs. rural), but it still basically comes down to a fight over whether the party should focus on fiscal conservatism or social conservatism.

Since 1980, Ronald Reagan was able to create a coalition of those two conflicting groups that would be a force in American politics for a quarter of a century. Indeed, George W. Bush won two elections by leveraging this powerful coalition – the irony is that the splinter of the party is going to come on his watch (whether this was substantially his fault is a discussion for another day). Even before the nation’s economy became the predominant issue over the past month, John McCain was handed a Republican Party that was in disarray without a vision (and in turn, his campaign has failed to create any vision in its place). In the zeal with which the current leadership of the GOP to use the “50-plus-1” model of securing an ideological base with a slight majority, they forgot that moderate independents are the ones that elect Presidents in this country. This group increasingly felt shunned by the Republicans, which resulted in the changing of control in Congress to the Democrats in 2006 and putting the 2008 GOP Presidential candidate, no matter who it was, at a severe disadvantage against any Democratic candidate. The Rush Limbaughs and Ann Coulters of the world believed that those people that didn’t meet every single litmus test of being supposedly conservative were RINOs (Republicans in Name Only) that ought to be kicked out of the party and ridiculed (Right Wing Nut House has a great post on this subject – despite the title of this blog by Rick Moran, who is the brother of Nightline anchor Terry Moran, it is actually one of the most well-reasoned and rationally-based conservative sites out there). Well, guess what – those so-called RINOs did end up leaving in great numbers, taking with them tons of independent voters that have similar viewpoints, and could very well end up giving the Democrats both the White House and a veto-proof Congress.

I’ll be straight-forward with you on my personal bias here – there is absolutely no political philosophy that I abhor more than populism. Most people that have my political worldview – fiscally conservative, socially liberal, and live in a large progressive city – would say the same thing. Traditionally, the Democrats have been the party most open to populists and they have certainly hammered home that type of message on the economic front in this election (which is why I will not be voting for Barack Obama). However, the Republican Party has increasingly become more populist since the 1990s (encapsulated by Pat Buchanan’s horrific speech at the 1992 Republican National Convention – of course, he came back this year and called Obama’s acceptance speech at the Democratic National Convention the greatest convention address ever). Even worse is the anti-intellectualism that seems to have come along with this rising tide of populism in both the GOP (once again, Rick Moran hits this point directly). As the evangelical and rural influence in the Republican Party has increased, so has the corresponding aversion to intellectualism. (Minneapolis Red Sox alludes to this in one of his latest posts.)  It wasn’t that long ago that people with higher income and educational levels were voting Republican by large margins over Democrats. Yet, the GOP has become so beholden to its populist wing that it is now the opposite, where the wealthy and highly-educated are actually voting for Democrats more (despite the lingering perception that the Republican Party is the party for the rich).

These Republican populists are more likely to be ideologues on issues such as abortion, gay marriage, and immigration. This isn’t a good thing for the Republicans simply because of demographic trends which will likely come to fruition in this year’s election. The interior Western states that voted heavily for Bush in 2000 and 2004 have more libertarians as opposed to evangelicals, which means that they are less likely to vote on socially conservative issues (other than possibly gun ownership). Those states also happen to have the fastest-growing Hispanic populations outside of Florida, which will make the Republican Party pay for its nativist rhetoric over the past two years (even though John McCain was at the forefront of trying to get a compromise passed on this issue, which made him so unpopular with the GOP populist base that it almost doomed him in the party nomination process from the get-go). Therefore, it shouldn’t be surprising that McCain is poised to lose Colorado and Nevada, which would essentially make it impossible for him to win the Presidency.

At the same time, a number of Southern states are seeing rapid changes in their own demographics due to an influx non-evangelical and educated Northerners transplants. Case in point is Virginia, which has gone from a solid-red state to one where Obama appears to have a commanding lead as a result of the increasingly Democratic area of the Washington, D.C. suburbs. North Carolina has experienced a similar influx and, not surprisingly, what once was a lock for the Republicans is now a toss-up. Essentially, these moves are mirroring what has happened in suburban areas across the country, which were once rock-hard Republican bases but are now leaning Democratic. (When DuPage County is having toss-up races, the GOP should note that it’s in a whole lot of trouble.) Add in a worrisome economy on top of all of those demographic shifts and the likelihood of America witnessing a landslide early on Tuesday night (as opposed to staying up late to see if a couple of precincts in Florida and Ohio get their returns in to decide the election) is extremely high.

While John McCain’s campaign has been far from stellar at any level (whether it’s the incoherent day-to-day messaging, the pick of Sarah Palin as the VP candidate that has backfired with independent voters, or the complete lack of an overarching message as evidenced by this New York Times Magazine piece), it’s important to note that he personally is actually polling better than the Republican Party generally. This means that if McCain loses, it will be more because of the long-term political miscalculations of the party behind him (plus the economy) as opposed to anything his campaign could have possibly done. The Republican Party needs to take note of this since there will be the inevitable ill-advised mouth-breathing calls from the conservative media establishment in the event of a McCain loss that he failed to generate any excitement from the conservative base and moved away from the moral values of the party.

Even though I will be voting for John McCain because I truly believe he’s the one national politician of our time that has proven that he is an independent thinker even when it was politically detrimental to him (I personally like Obama and will ultimately be fine with him as President, but I concur with Ruth Marcus in failing to see how his policies break with the traditional Democratic Party approach at all – the fact that Obama’s incredibly well-oiled Chicago-style campaign has been able to get the American public to largely perceive that he is the supposed change agent while McCain is “four more years of Bush” is sad on a number of levels) and hope that he will somehow win (which would be kind of like saying that I hope that the Illini will get to the BCS National Championship Game this year – technically, they could if they win out and every team ahead of them lost every single other game, just as McCain could win by sweeping every single battleground state despite the fact he’s not leading in any of them with less than a week to go), in a way, a horrible loss for the Republicans next Tuesday would be a good thing long-term for the party. This will put the discord between the libertarians and the populists front-and-center such that the GOP has to figure out which direction it’s going to take since the old Reagan coalition will have become fodder for the history books. The Republicans have the opportunity to either perform a make-over to become a true majority party that invites intellectual debate or alternatively could choose to be a vocal minority that only cares about ideological purity. Is the party going to opt to grow and attempt to expand its base by adopting a libertarian platform in light of substantial demographic trends, even in the traditionally Republican strongholds in the South? Or is the party going to look to protect its evangelical core because they are the loudest and most activist group? If the Republicans take the former approach, they will retain me as a supporter in general. However, it will be the last straw for me and a whole lot of other people if the party decides to largely stick the same old socially backward tactics to scare up evangelical votes.

(Image from Los Angeles Times)